Range anxiety grips investors: Will the Fed cut 25 or 50 bps?

Will it be Risk on or Risk Off today?

It’s called ‘range anxiety’….and it’s got 2 parts…. the first is what is the right range for today’s move (25 bps or 50 bps) and the second is what’s the ultimate range for this cycle? (100 bps – 300 bps)  And that IS the debate…..and it has investors, traders and algos’ confused…..If he cuts by 25 bps (when they are screaming for 50 bps)  they will hit the SELL button (think temper tantrum) and then IF the economy gets weaker, they will say that JJ wasn’t aggressive enough and now needs to make bigger cuts….…. and if he cuts by 50 bps (they will still hit the SELL button to lock in profits after this move higher)  and then the economy gets weaker then they will say – he still wasn’t’ aggressive enough and that would suggest that we’re going off the edge (think deeper recession) – which will also demand bigger cuts… and it will create a dramatic move in the markets.

On Monday – 3 Democratic senators (of course) that should know better - called on JJ to cut rates by 75 bps saying that we needed to protect our economy from potential harm….

Lizzy Warren, Sheldon Whitehouse and John Hickenlooper (all very left) said that.

“If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession. The committee must consider implementing rate cuts more aggressively upfront to mitigate potential risks to the labor market’.

The letter was a direct result of the latest BLS report that revealed we ‘created 818k LESS Jobs between March 23- March 24 – meaning job growth wasn’t’ what the B/H administration told us it was…so now they are demanding a huge cut,  conveniently only weeks before a Presidential Election – I mean -  could it be more obvious?  Sadly, my gut tells me that they just don’t ‘get it’…. they all skipped econ 101 and 201and are now demanding a cut that would create excess turmoil for an already anxious market while risking reigniting inflation.  

Only weeks ago – the talk was for 3 – 25 bps cuts over the next 3 meetings……Now, they are demanding that we make on 75 bps cut today and then continue to cut rates at subsequent meetings ultimately taking the rate down 300 bps – which would put rates at 2.25% - 2.5%!  They have lost their minds….….…. Let’s be clear – historically 4% -6% is normal……. 2.25% - 2.5% is NOT normal…….and would suggest an economy in trouble…. (which we are not).  It’s comical really, 2 weeks ago, Lizzy and Democratic Senator Jacky Rosen (Nevada) blamed inflation on high rates – Again, a clear example that they skipped ANY economic class offered…. I guess they forgot that the surge in inflation to 9.4% happened when rates were zero and they approved massive spending plans. Whatever! Facts are not important.

In any event – while I still think he should only cut by 25 bps – my 42 years of experience tells me to listen to what the market is demanding and what the FED has leaked to the WSJ…...and that is 50 bps so again, anything less will be met with big disappointment.  As I said in prior notes – the announcement comes at 2 pm and the press conference begins at 2:30 pm…so if it’s unclear at 2 pm, it will become clearer once JJ starts to speak….and I expect him to emphasize the data….remember – JJ keeps reminding us that he is ‘data point dependent’.  In the end – JJ needs to make it clear that he is not worried about a deep recession.

So,  while most stocks advanced you can cut the air with a knife as we all wait for ‘the news’…..The Dow lost 16 pts, the S&P up 2, the Nasdaq up 35, the Russell up 16, the Transports up 171 while the Equal Weighted S&P added 10 pts. Yesterday we learned that US retail sales ‘surprised’ to the upside – suggesting that consumers are not slowing down (just another reason for a smaller cut)….and that sent Industrials, Financials, Consumer Discretionary and Basic Materials higher…..while sending Utilities, Tech, Consumer Staples, Communications, Healthcare and Real Estate lower.

Bonds took a breather after the dramatic move higher over the past 2 months…and that sent yields a bit higher…. The 2 yr. leading the way. 

Oil oh boy…Guess what it did yesterday?  It kissed that August low we discussed…trading as high as $71.92 – hit resistance before closing at $71.19.  This morning it is down $1.30 or 1.8% at $69.89. Look, oil remains vulnerable to the downside despite tensions in the Mid-East -as the demand/supply story remains bearish. Recall they have been telling us for months now that Chinese demand, European demand and now US demand is waning….and if that’s the case – do you think oil can go higher?  Now, I’m in the camp that I do not believe that narrative.  Energy demand is growing, but energy supply is growing faster…...and that’s the issue…Again, it’s econ 101 – the Supply/Demand equation. This isn’t rocketing science.

2 weeks ago, the short term trendline crossed the long term trendline (to the downside) and that suggests lower prices ahead…. I think we will remain in the $65/$72 trading range until it’s clear that global demand is not waning….

Gold traders are ringing the cash register after the move up and thru $2600.  Something we discussed…. - yesterday it closed at $2592 as some traders decided to take their money off the table.  I would not be surprised if we saw gold test $2550 ish…after the announcement…  Trendline support is at $2500….

US futures are ticking a bit higher…Dow futures up 60, S&P’s up 7, the Nasdaq up 24 while the Russell is flat. We are due to get some eco data today…Housing Starts +6.5% and Building Permits +1% - big swings over last month’s negative reads…. Now unless these numbers come in much different – I don’t think it makes a difference. 

European markets are a bit weaker…. tomorrow we will hear from the BoE…and they are expected to cut by 25 bps. UK inflation figures came out and are in line. 

The S&P closed at 5634 – up 2 pts….and with futures pointing a bit higher we are left to wonder what’s next. 

The next move in the markets will initially be caused by the headline number at 2 pm…and then about what he says going forward about the path and the pace of future cuts - which is why – his 2:30 press conference will be important. 

Remember NY Fed President Billy Dudley (a voting member) has been pushing hard for a 50-bps cut saying that.

 “Monetary policy is tight, when it should be neutral or even easy and a bigger move now makes it easier for the FED to align its projections with market expectations, rather than delivering an unpleasant surprise not warranted by the economic outlook.”

Finally -It’s about having a plan and remaining focused and balanced. Building a strong, well diversified portfolio takes time and commitment, but in the end pays off big….….  Do not let the noise drive your emotions…

Grilled shrimp on a bed of lemon infused orzo w/feta cheese

For this you will need:  about 2 doz large, clean & deveined shrimp, 10/12 skewers, olive oil, oregano, fresh lemon juice, minced garlic, s&p, feta cheese and some Orzo (Orzo is a rice shaped pasta – used in many types of pasta salads or soups or in this case as a bed for the shrimps).

**if you are using wooden skewers – you must soak them in water for at least 20 mins. **

Now – pierce the shrimps onto the skewers – maybe 4 at most per.  Set aside in a deep Pyrex dish.

Next mix the olive oil, garlic, oregano, some lemon juice, s&p – shake well and then pour 1/2 over the shrimps.  Place in fridge and let marinate.

Heat the grill – using a grill brush –clean the grill rack.

Bring a pot of salted water to a rolling boil and add the orzo…cook for about 8 mins or so…do not let it get mushy…. keep it a bit aldente.  Strain and mix with the feta.  Now pour the remaining mix into the pasta with the feta and stir well to coat.  Place the orzo in a large family style platter and make a bed.

Next – remove the shrimps from fridge and place on hot grill….be sure to not burn…. should take no more than 3 to 5 mins max.  Now place the skewers on top of the orzo and feta.  Take a picture to remind yourself of this great and simple dish.